Higher energy prices signal more inflation

Sky-rocketing energy prices continue to send a shiver through the stock market.

Declining expectations for corporate profits as well as higher input costs suggest index funds may continue to pour money into commodities in order to balance their portfolios and hedge inflation. The concept is that by buying commodities, if stock prices weaken and commodity prices move higher, the overall risk of the portfolio will be reduced.

The end result, however, is that commodity markets see an influx in money and upward pressure on prices. The rally this past year in agricultural commodities, as well as energies, is in part a reflection of an expectation for inflation. The energy market is the primary factor behind these concerns, as energy products are used in just about every facet of life and are critical to the economy.

So what does it all mean? For now, as long as the crude oil market continues to move higher, it is likely that funds will continue to invest money into commodity markets. By purchasing commodities, these funds will be in a position to drive agricultural prices higher. When it will end or how long it will last is anybody's guess. For now, farmers need to make sure they are positioned to take advantage of high prices. If inflationary concerns subside sooner than later, grain prices could see a major downturn, especially if normal weather conditions exist.

If you have questions or comments, contact Bryan Doherty at Top Farmer at 1-800-TOP-FARM ext. 129.

Sky-rocketing energy prices continue to send a shiver through the stock market.